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Charges applicable before and after a car loan disbursement

Charges applicable for car loan

Apnaloan.com Research Bureau

18 Dec 2007

Very
often we fail to read the fine print in a loan document. The real cost of your car
loan is visible only when you factor in numerous other charges levied. If you intend
to make comparisons with other types of loans, it is necessary to take into
account these charges to arrive at the real cost. For example, the processing
fee or prepayment fee in the case of a car loan will be different from that of a
personal loan.

Here is
a list of all charges that are levied before a loan is disbursed, through the
course of the loan, or when you terminate the loan:

Description of Charges:

Processing fee

Prepayment fee

Charges for late payment

Cheque bounce charges

Documentation charges

Processing fee:

The bank charges
you an amount as a processing fee. This fee may vary from bank to
bank. The bank deducts this amount from your loan before disbursal.

The processing fee is generally a percentage of
the loan amount and is between 0.1- 1% for car loans. Some banks levy a flat
charge of Rs 500- Rs 2000 upfront, and then deduct the balance processing fee
(if any) from the loan amount before disbursal.

This
fee is important for one to consider, since banks charge different rates. This
actually can make a difference on the real cost of the loan.

Pre-payment fee:

Most banks charge you a penalty when
you opt for the option of prepaying the loan amount. This prepayment penalty is
levied because when you prepay your loan, the bank loses income in terms of
interest.

Ideally, you should go for a bank that does not charge you any prepayment penalty. In case there is no such bank, you
should go for the one that charges the least.

The prepayment fee varies
from bank to bank. It varies from 1% to 5% of the outstanding loan amount.

Charges for late payment:

When the monthly installment
(EMI) towards repayment of a loan is delayed the bank collects the installment
along with late payment charges. The late payment charge is also known as the late
payment penalty.

This is chargeable if you
make the payment after the due date. Late payment fees range from 1% to 2% on the
overdue amount.

Cheque Bounce Charges:

A cheque bounce is when a
cheque that has been presented for clearance is not honoured by the bank
because the amount written on the cheque exceeds the available balance in the
account. If you have given post-dated cheques to the bank to debit the EMI from
your account, ensure that you have sufficient funds in your account every
month. If a single cheque bounces, the bank charges anything from Rs 200 to Rs 450
as penalties.

Documentation charges:

Banks
levy documentation charges towards the verification of the various documents
you provide towards the loan application. The expense on this account is
usually passed on the customer, which range from Rs 250 to Rs 500.